If you own a holiday home that you rent out on Airbnb or Stayz — and also use yourself over Christmas, Easter, or school holidays — the Australian Tax Office has just changed the rules in a way that could cost you thousands of dollars a year.
From 1 July 2026, a new tax ruling (TR 2026/1) comes into effect that reverses 40 years of ATO policy. The old approach — where you could claim full deductions as long as you made a "legitimate effort" to rent the property — is gone. Under the new rules, the ATO will ask a harder question: is this property mainly used to earn rental income, or is it mainly a holiday destination for you and your family?
If the answer is the latter, most of your deductions disappear.
Here is what changed, who is affected, and what you can do about it before the 1 July deadline.
What changed
For decades, if you owned a holiday home and could show you had genuinely tried to rent it — even if it sat empty for weeks — the ATO accepted deductions for mortgage interest, council rates, insurance, and depreciation. We covered how that standard worked — and where owners were already getting caught out — in Holiday Homes & The 'Available for Rent' Trap.
TR 2026/1 ends that approach. The ruling introduces what accountants are calling the "mainly used" test, derived from the leisure facility provisions in Section 26-50 of the income tax law. If your property is mainly used for personal leisure rather than income production, the bulk of your holding costs become non-deductible.
The key shift is in how the ATO measures "mainly used." It is not just a calendar-day count. The ATO gives extra weight to peak demand periods — summer at coastal properties, ski season in alpine regions, school holiday blocks everywhere. If you block those periods off for your own use while listing the property as available for rent the rest of the year, the ATO is likely to conclude the property's primary purpose is personal enjoyment.
Roughly 250,000 Australian properties operate as short-stay rentals and are in scope, based on ATO data cited in the TR 2026/1 Explanatory Memorandum. Many are negatively geared, meaning owners have relied on deductions to offset rental losses. Accountants have described the ruling as a "rude awakening" for owners who assumed the old approach would continue indefinitely.
What you lose — and what you keep
Not all deductions are affected equally. The distinction is between holding costs (the cost of owning the property) and direct rental costs (the cost of actually having guests).
Deductions at risk if property fails the "mainly for income" test
| Expense | Status |
|---|---|
| Mortgage interest | Denied |
| Council rates, land tax, water charges | Denied |
| Body corporate / strata fees | Denied |
| Building insurance, landlord insurance | Denied |
| Repairs and maintenance | Denied |
| Capital works allowance (building depreciation) | Denied |
| Plant and equipment depreciation | Denied |
Deductions that survive regardless
| Expense | Status |
|---|---|
| Advertising on Airbnb, Stayz, etc. | Allowed |
| Cleaning fees between guests | Allowed |
| Platform commissions and booking fees | Allowed |
| Property management commissions | Allowed |
In short: if your property fails the test, you can still deduct the costs of each individual booking — but you lose the year-round carrying costs that typically represent the bulk of a negatively geared property's tax benefit.
A worked example
Consider a coastal property near a popular beach town. The owner lists it on Airbnb from February through November — about 270 days — but blocks the property for family use from late December through January (peak summer season), and again over Easter and the June school holidays.
Despite being listed for more than six months, the owner has blocked the property's highest-demand periods. Under TR 2026/1, the ATO is likely to classify this as a leisure facility used primarily for personal enjoyment.
Deductions denied:
- Mortgage interest: $28,000 per year
- Council rates, insurance, body corp: $8,000 per year
- Total denied: ~$36,000
Deductions allowed:
- Airbnb commissions and cleaning: ~$4,500
If that owner was in the 37% tax bracket, the 40-year-old rules were saving them roughly $13,000 a year in tax. Under the new rules, that disappears. And it is not just a reduced deduction — the entire $36,000 rental loss can no longer be used to offset salary income, which is the "rude awakening" most negatively geared owners are facing.
What "mainly for income" actually looks like
TR 2026/1 does not require the property to be rented 365 days a year. The ATO's accompanying practical compliance guidelines (PCG 2026/2 and PCG 2026/3) provide a risk framework.
Lower risk (likely to pass the test):
- Property is genuinely available during peak demand periods
- Personal use is limited to a few off-season weekends when bookings are unlikely
- Pricing is set at market rates (not deliberately high to avoid bookings)
- Owner keeps records showing genuine attempts to secure guests year-round
Higher risk (likely to fail):
- Peak periods (Christmas, Easter, school holidays, ski season) blocked for personal use
- Property priced at above-market rates during peak periods
- No professional property manager; ad hoc booking approach
- Rented to family members at discounted rates
If your property sits in the lower-risk category, you can still claim deductions — but using time-based apportionment. The formula is:
(Days rented + days held available for rent) ÷ 365 × total holding costs
For example: property rented 200 days, available but unbooked for another 100 days, personal use 65 days. Mortgage interest $24,000 per year. Deductible portion: (200 + 100) ÷ 365 × $24,000 = $19,726.
Some edge cases to watch
Ski properties: Blocking the Christmas–New Year peak ski window for personal use carries the same risk as blocking summer at a beach house. Location-specific peak demand is what matters, not a fixed calendar.
City apartments: For properties in CBDs or event-driven markets, "peak demand" may be tied to festivals, sporting events, or conference seasons rather than school holidays. The ATO assesses this contextually.
Shared family ownership: If multiple family members co-own the property, each member's personal use days are counted toward the household total. Renting to relatives at a discount also weakens the income argument.
Primary residences with a rented room: Room rentals within your main home are included in scope, though the apportionment rules are more straightforward given the area-based method applies.
The transition: what the old rules still cover
The new rules apply from 1 July 2026 onwards — that is, from the 2026–27 income year.
For your 2025–26 tax return (the one you'll lodge later this year), the old rules still apply. If you entered your current rental arrangement before 12 November 2025, the ATO has also committed not to review deductions claimed before 1 July 2026 for those arrangements.
This means you still have time to:
- Claim full deductions for this financial year under the existing approach
- Assess your property's position before FY27 begins
- Make changes to your booking strategy or management arrangements before the new rules hit
What to do before 1 July 2026
Here is a practical checklist:
- Calculate your peak-period blackouts. How many days did you block over Christmas, Easter, and school holidays in the current year? Estimate whether your property would pass the "mainly for income" test from 1 July.
- Quantify at-risk deductions. Add up your mortgage interest, rates, insurance, and body corporate fees for the year. This is what you stand to lose if the property fails the test.
- Review your pricing strategy. If you set deliberately high prices during peak periods to avoid bookings, that is a red flag under PCG 2026/3. Market-rate pricing is part of demonstrating genuine rental intent.
- Start keeping better records. Booking logs, rejection logs (evidence that you turned away no reasonable offers), guest communications, evidence of advertising during peak periods, and notes explaining any vacancies will all matter if the ATO asks questions. Rejection logs are particularly important — they demonstrate that keeping the property available was not just window-dressing.
- Consider a property manager. A professional manager handling year-round bookings — including peak periods — is the clearest way to demonstrate income-first intent.
- Model the numbers. If restricting personal use enough to pass the test removes the lifestyle benefit of owning the property, it may make more financial sense to sell and redeploy the capital into a standard investment property.
When to get an accountant involved
If your property is negatively geared and you have been blocking peak periods for personal use, this ruling changes your tax position significantly. The decision whether to restructure your rental approach, sell, or accept the reduced deductions depends on your individual circumstances, the property's capital growth outlook, and your broader tax position.
An accountant can help you run the numbers on all three scenarios and assess where your property sits on the ATO's risk framework — particularly if you are considering changing your booking arrangements before 30 June 2026.
If your property has always been available year-round with minimal personal use, you likely have nothing to worry about — but it is worth documenting that position clearly for FY27 onwards.
Bottom line
TR 2026/1 ends the "we tried to rent it" era for holiday home tax. From 1 July 2026, the ATO will assess whether your property is genuinely used to produce income — not just listed for rent — with particular attention to what happens over Christmas, Easter, and school holidays.
If those peak periods are blocked for your own use, most of your holding-cost deductions are at risk. The time to act is now, while the current financial year's rules still apply and you have a few weeks to assess your FY27 position before the new rules take effect.
This article is general information only, not personal financial or tax advice. Tax rules can be complex and individual circumstances vary. Speak to a registered tax agent or accountant about your specific situation.
